The SAFE Banking Act just got a new, prominent supporter – on April 9, 2019, Treasury Secretary Steven Mnuchin pledged to take a look at the legislation that would allow financial institutions to service cannabis businesses. While the Treasury Secretary admitted he’s not familiar with the Act, he acknowledged that the current conflict between federal and state law is a “significant issue.” He similarly echoed the recurring voiced concern with leaving so many marijuana companies operating on a cash-only basis, specially noting that the Internal Revenue Service (IRS) had to build “cash rooms” for taxes paid by marijuana companies.
During a House Appropriations Subcommittee hearing, Rep. Brad Sherman (D-CA) asked the Treasury Secretary to review the SAFE Banking Act and consider endorsing it within two weeks. Mnuchin advised he’d be “happy to review it and [have his] staff  follow up.” The Treasury Secretary was also asked for potential solutions to provide state-legal cannabis businesses with access to financial institutions, to which he took a strong and defensive position:
Let me just say, I hope this is something that this committee can on a bipartisan basis work with since there are people on both sides of the aisle that share these concerns. … I will just say I don’t believe this is a failure of the regulators. I want to defend the regulators on this issue. There is not a Treasury solution to this. There is not a regulator solution to this. This is something where there is a conflict between federal and state law that we and the regulators have no way of dealing with. If this is something that Congress wants to look at on a bipartisan basis, I’d encourage you to do this.”
As we’ve previously written about, there have been several calls for clarity on this banking issue. Most recently, during a panel at the American Bankers Association’s 2019 Washington Summit, the Presidents of three Federal Reserve Banks expressed their own concerns and reiterated requests to Washington for guidance to all financial regulators on servicing state-legal cannabis businesses. Raphael Bostic (Federal Reserve Bank of Atlanta), Tom Barkin (Federal Reserve Bank of Richmond), and Esther George (Federal Reserve Bank of Kansas City) all stressed how the chasm between a growing number of state and federal marijuana laws has created difficulties for both sides (bankers and cannabis businesses, that is).
For better or for worse, we’re responsible to follow federal law, and so we would very much like to have clarification on this – whatever legislative answer gets us to clarity would be our preferred outcome,” Mr. Barkin said.
Ms. George added, “the reality on the ground is there are businesses that are considered state-legal around this substance, and the money that is generated from that again, is a challenge for the banks” because choosing to service a marijuana business is “not an easy judgement for the banks to make.” “This is a case where you have to know your customer and you have to weigh the risk of what you’re worried about could happen around this.” Mr. Bostic characterized the situation as “impossible” because federal regulators don’t actually have a vote but are asked to navigate in a strange middle space. “There’s not really a clear thing for us to say—we can’t give anyone 100 percent certainty in terms of how this is going to turn out,” he said. “I do hope that we get some legislative clarity sooner rather than later. I would love some resolution, one way or the other, as soon as we possibly can because this is only become more prominent.”
The Presidents echoed what other top federal financial officials have said in recent months. The ABA also previously expressed its support in a letter to members of the House for the SAFE Banking Act earlier in March.
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Author: Jihee Ahn